The World Bank Group yesterday painted a gloomy picture of the Nigerian economy, saying all indices place it at its lowest point in history.
The Bank in its Nigeria Development Updates presented in Abuja, said inflation would push seven million more Nigerians into poverty at the end of 2022.
Lead Economist for Nigeria, World Bank, Dr. Marco Hernandez in the report stated that a combination of policy distortions on the part of the Nigerian government and global shocks is fuelling inflation.
Hernandez stressed that in Nigeria, it was not just the price of imported products that were on the rise, but also locally produced goods were rising too fast.
He noted that due to the cumulative effect of inflation, the national minimum wage of N30,000 ($82) is now worth N22,000 ($37).
Even at that, the Bank said most Nigerian families earn N15,000 monthly which worsen the poverty situation in the country.
He stated that there is a direct link between foreign exchange rate and inflation, adding that when FX rates go up at the parallel market, inflation rate follows.
According to the Bank, “suboptimal exchange rate management is fuelling inflation due to FX supply constraints and lack of predictability, which is ultimately leading to a rise in the parallel exchange rate which is closely associated with inflation.
“Import and FX restrictions reduce the supply of food and key staples, increasing their prices and those of associated goods. The monetization of fiscal deficits by the Central Bank of Nigeria (ways and means) and CBN’s subsidized lending to firms add to inflationary expectations’ ‘.
The report stated despite the rising price of crude in the international market due to the Russia-Ukraine war, Nigeria’s oil production and revenue have continued to dwindle.
The Bank said it was concerned about Nigeria’s fiscal side, emphasizing that Nigeria has a fiscal urgency.
“We are calling this side Nigeria’s curious case of missing oil revenue. Oil production is going down and this began in 2021 and it is likely to exacerbate in 2022. The first two reasons for lower oil production are widely known. High oil production costs including oil theft and others, and the other reason is that the Federation has been accumulating areas on joint ventures”, he added.
He said the revenue from oil was greatly whittled down by deductions from subsidies and others.
Petrol subsidy conundrum
The bank in the report stated that petrol subsidies could cost Nigeria as much as N5.4 trillion in 2022 alone, much higher than “all of the resources allocated to health, education, and social protection together”.
The bank projected that net oil gas revenue for 2022 will fall to N1.6 trillion from N2.6 trillion recorded in 2021.
The bank held that Nigeria’s policy of trade restriction in the form of import restriction and border closure was hurting the economy and leading to price rises.
“We want Nigeria to boost domestic value addition but currently the trade restrictions that are in place are hurting Nigerians and actually not achieving those goals of industrialization that Nigeria desperately needs.
“Why? Because import and FX restrictions are incentivizing smuggling, reducing revenues and hurting consumers”.
It stated that Nigeria was losing $1.8 billion annually due to import bans as a result of tariff evasion, adding that from 2015 to 2019 Nigeria has lost one percent of its revenue due to FX restrictions.
In its reaction, the Federal Government admitted that the findings in the report were not new.
The Minister of Finance and National Planning, Mrs. Zainab Ahmed who spoke via zoom said the huge amount paid as subsidy was threatening the nation’s survival.
Mrs. Ahmed said the removal of the subsidy is now in the hands of Nigerians.
“We really are at a crossroad and there are very difficult times. It is actually paradoxical. At a time when growth is accelerating there are so many other challenges that have gathered and are impacting the lives of the people.
“On our part, we are going to reduce the fiscal pressures caused by the increase in our deficit caused by increase in PMS subsidies. These PMS subsidies are costing us an additional N4 trillion than was originally planned.
“This is an unplanned deficit. We have gone to the National Assemble and we got approval but the approval is for us to cut down on some of our investment costs. Investments which we are supposed to make in the oil and gas industry which we are delaying to a later time.
“We also have asked that we need to borrow more which is very serious because already our borrowing has increased significantly and there is a problem in being able to service debts. Even though revenue is increasing, the expenditure has been increasing at a much higher rate”.
She explained that “the PMS subsidies we are carrying out are threatening the nation and it is impeding the government’s ability to invest in human development”.
She rejected the call that since petrol subsidy is a policy of the Federal Government, it should come from its revenue.
Also speaking, the Governor of Anambra State, Prof Chukwuma Soludo said politics was stopping the Federal Government from taking economic decisions.
He insisted that the Federal Government alone should bear the cost of petrol subsidies since it was its policy.
He pointed out that the country was facing existential threats from its many challenges, adding that it was time to take bold and decisive actions.
On his part, Mr. Atedo Peterside said the country was sleepwalking into disaster.
He said the only thing new in the report is the gravity of the issues.